The last three companies we funded had one thing in common. All the founders were foreigners or first time founders, and all of them struggled with fundraising dance that one has to go through to close a successful seed/A round in Silicon Valley with Tier-1 investors.
There is a set of fundamental questions that every entrepreneur should ask a VC during the first meeting. Questions like this will demonstrate that you know the game and, as a founder, will build instant rapport with other VCs.
If you are a founder reading this, It’s important to understand that you are our customer, and we live to serve you, not the opposite. It’s acceptable to ask these questions during the first meeting.
Before we go over the questions, I am assuming that you’ve done your research regarding why you are interested in working with that particular firm/person and understand the acumen that one has to take your business to the next level at a higher velocity that you could have done solo.
1 — How much you have in AUM?
E.g. what is the size of your fund or how much capital do you have under management? This question is important because it opens room for several other more specific ones.
If you are raising a seed round, but talking to someone that has over $700M under management, the check size you might be looking for is probably not on that person priority list.
2 — Do you typically have an ownership target?
This question is important since, on the back of your mind, you can figure out if their ownership target aligns with your expectations regarding the valuation of your company. You should have your advisors and angels help you find a particular price or valuation CAP that you believe it’s fair before you go out and talk to VCs. If you are capable of running a competitive fundraising process, the market will price you out, but alignment on expectations helps everyone get to a yes faster.
3 — What’s the average check size that you typically write?
If you know their ownership target and the average check size, you can calculate the range on how much the investor is valuing your company at any given time. Some investors are price-sensitive, and some aren’t, but you’ll find more about that later on. As a founder, you should go back to your fundraising CRM and place that meeting/interaction as a possible “$XXXX” commitment that will fill your round. Fundraising is no different than an enterprise sales process.
4 — How does your process typically look like?
One thing that most foreign founders or first-time founders miss is that they get too emotional about their VC relationships during the fundraising process and that distracts them to the final goal, which is getting back to work and build a business.
VCs are friendly people in general because the option of investing later is important in the business. It’s a combination of FOMO, self-preservation, and reputation. When you say no 99% of that time, that is key.
As a founder, you should move every stage of the funnel at the same time and concentrate two weeks for 1st meetings, 2–3 weeks for 2nd and 3rd meetings, 2–3 weeks in due diligence and closing. A lot of less experienced founders in fundraising, tend to think that because the VC is nice to them that they are “in.” Remember: the deal is done when the money is in the bank.
This is why understanding how each firm works is paramount. How many meetings are necessary? How long will it take and where are you in their process are important notes for your fundraising CRM / tracking software?
5 -Have clarity on Next steps
You should ask the VC, what are the next steps from here and what would it take for you to commit to investing in our company. Those are high-value questions for you as a founder, and the VC should be transparent with you on what he/she looks for. If the investor you are talking to skews away from that question, I would mark them as cold lead. A lot of investors take meetings so that they can have open doors or learn about an industry. Be careful with that.
6 — Email a follow-up note about the meeting from the parking lot
Some sessions end with verbal commitments, and it’s your responsibility to turn those into writing. I would not wait hours or days. Demonstrate that you are at the top of your game and email the VC right after the meeting, with a minute-like email, in which you’ll list the next steps and commitments that might have been made during the meeting for both parties. If you agreed on catching up in a week to have an answer, offer your available times for next week and try to get a calendar appointment in the next few hours.
7 — Generate inevitability at the end of the meeting
When you are close to concluding the meeting, you should be explicit that you are talking to several other funds (if you truly are) and plan on running a competitive process in the coming weeks, to find who is the best partner for your business. Ask the VC for reference checks from other founders that they have invested and see how they react. The best founders will achieve their goals with or without investors and that level of grit, combined with confidence without attitude is what we look to fund.